The car ladder?

adamjpl

Scrapit said:

Whats the problem if you can afford it? 

I was simply asking what's the best way for me to continuing doing this until I stop doing it.

motorguy

adamjpl said:

Hello all. I will start by saying I consider myself a complete petrol head! I’m 26 and since I turned 23 I’ve always went with the lease option to get my hands on new performance cars. Starting off with an A45 and then switching to my current M2 competition you can see my passion for things that go fast and pop and bang. I’ve come to realise the only way I can keep getting into these cars is with massive financial outlays and massive monthly payments. Luckily I can afford these payments as well as save every month into a new car fund, I have my own flat as well as investments in a shares fund held in an ISA which I make monthly payments towards. However I want to continue to get into better and better cars but I feel with a lease I lose ALL the money that goes into that car during the lease period. My question is should I get a bank loan and finance a used sports car that way, slowly working my way up to better and better cars or should I take advantage of PCP deals and do it that way? I’m not sure on the ins and outs of PCP if I am losing 100% of the money with that as well. Unfortunately driving a car I don’t like the looks of or enjoy the feeling of driving of is not an option for me. Any advice is greatly appreciated thanks!

You're getting the newest cars but also paying the most depreciation and paying interest on full amount borrowed too.  Fine if you're happy with that and can afford it.

Having been in a similar position in the past (last car an A45 also) and having chosen to finance new cars we've adapted a new approach.  We've bought this time with a view to keeping it.  Got a new M140i last year for £28.2K which was a gift compared to the prices of a replacement A45 or an RS3 and we just plan on running on at it.

However, personally, if i was you, i'd be looking at buying a used car, running it for maybe those 2-3 years and then replacing it.  If you bought with a cheap personal loan, you could expect to retain a minimum of 50% of the cars value after three years.  So buy a car at £25K, run it 3 years (or whatever), have loan paid off, use the £12.5K value, added another £25K to it (if you must), then you're in to a £37.5K car with a lot of equity and work from there.

You can also find cars that buck the depreciation trend.  We bought a year old 370Z GT with 9K miles for £19,995 from a car supermarket who really had no idea what to do with it.  We ran it 2.5 years and got £18,000 for it from a trade buyer.  Thats peanuts depreciation for the amount of car we had.

Also, what does your £50K M2C give you over running a £25K M2?  Some technical differences yes, but is it really worth +£25K more and a world of depreciation?  

motorguy

adamjpl said:

So I decided i'd run the numbers on my current car and see which option was the cheapest in the long run.
Autotrader price new M2 comp DCT - £50475.
Leasing
Deposit 9 x 459.00 =  4131
23 months x 459 = 10557
Total cost of lease = 14688 over 2 years 16k miles
Saving for new car = 187.50 per month 
Total towards cars per month (Lease + Savings) = 646.50
Buying car outright
Deposit = 4131 (Cash) + 46344 (Loan over 6 years with 0% interest which happens never)
Monthly outgoing on car = 643.67 assuming 0% interest. 
after 23 months I'll have paid 14804.33 towards loan
Remaining balance = 31539.67
Car value with 16k miles = 31540 part exchange / 33760 private sale according to autotrader. Garages are selling for 39k for one with 6k miles on the clock which was the cheapest and highest mileage I could find so I don't think the valuation is too far off/might even be too high. 
Therefore in this instance and with the contract I am actually on it is cheaper in the long run to lease this vehicle than finance it. That removes the ambiguity I was seeing above.  

Avoid new on a high depreciating car if you want to get out of the big monthly payment every three years cycle.

There was a time when M cars held their money.  Not any more.  Big depreciation, big running costs, big fuel costs.  You could buy a decent used Porsche 911 and probably be out less over the same timeframe.

adamjpl

gzoom said:

@adamjpl I get the whole car buying addiction, and looking at your situation, under 30, own property, and have ISA investments whilst running a M2, I would guess your income is far far above that of an 'average' 20 something old, intact your income is probably far above that of many 40 something olds.

In your shoes I really wouldn't worry about buying or leasing, both ways ways cost money because new cars cost money regardless how you fund them.

Your biggest headache is actually what you are going to replace the M2 with when you get bored. The natural choice is something like a M5 at which point you are talking about some really big spends. However you are very close to the top of the ladder, so actually long term ownership should be considered. Anything that's considerably better than a M5 and you are looking at proper supercar money, which your projected income when you're 30+ may or may not support.

I've always used cars as a way to motivate myself to progress my career and increase my income, as that is the only real way to get into a nice brand new car. My current new aspiration is own a Taycan before I hit 50, that's over a decade away, but when you have family + house renovations to do cars take a back burner.

So why not work backwards, think what car you want to own when you're 30, and work out a plan of how you are going to afford it!!  In your shoes you should be aiming for a cash purchase as you clearly have the income to support it.

Good luck, it's a nice problem to have in the current financial world where 1/4 of people are been paid by the government.

Wow! Firstly I'd like to thank you for taking the time to read my post and for offering your advice whilst being understanding. I would say you're right and ultimately I'd love to have an AMG GTR which is a lot of money and I'd say you're right at that point it would be long term ownership which with a GTR wouldn't be a bad thing since they're going out of production. Next car I am struggling with as I hand this back in March next year but I like the M4 and with the new 4 series coming out the prices of M4s are dropping like a stone.

Good luck with the Taycan that's a rocket! Thanks again.

adamjpl

WaywardDriver said:

Like someone else said, I think you need to check your maths. Not that familiar with leasing costs but I calculate the PCP monthly payments to be £730 based on 4% over 24 months and 40% depreciation. 
In an idle moment, I once compared a £k30 middle-of-the-road SUV with a Porsche Macan at £k50. Due to considerably lower depreciation, the monthly payments for the latter weren't that much more. But then I looked at Porsche user forums and discovered that most added between £k10-15 on extras which weren't reflected in the residual value. A quick look at the options for your £k50 M2 suggests something similar.

I've updated the maths as above with that persons input. I will admit I got a pretty amazing deal on the M2C I feel looking at the PCP deals at the time I thought it was a joke but my sourcer found it so can't take the credit for that. Extras do add so much on to a car which is something I've never done and my car has no options on it or any modifications.

motorguy

adamjpl said:

Scrapit said:

Whats the problem if you can afford it? 

I was simply asking what's the best way for me to continuing doing this until I stop doing it.

If thats the question, then realistically - do what you're doing.  Find the best deal on the car you want and then run with it.

The problem is that moving "up the ladder" then becomes about bigger and bigger monthly payments.

motorguy

fred246 said:

I remember someone telling me they couldn't afford an older car because they had no money for repairs. It's hard getting your head round the concept of poor people have to have new cars. Rich people can afford old.

I'm sure if you were droning on with your usual monologue of how dont trust a mechanic as they rarely do the job you asked for but instead use you tube videos to work out how they can do it themselves, its probably no surprise they palmed you off with "i cant afford repairs" as an excuse as they started backing away.

Penelopa.Pitstop

I don't think there's a universal rule how to finance the car. Depending on the model, leasing or PCP promotion at the time, different options might be better. If car is outgoing model, you might be able to get it with big discount on PCP/cash or it might be offered on PCH cheaply. Sometimes brand new year car with big discount, is cheaper than 1 yr old.

I personally look for PCH promotions. So far managed to get fast or fast and expensive cars, but right now struggle to find another car.

I understand why someone says, that they can't afford used car. My current car is leased cheaply. If I buy it after 3 years, I expect it to depreciate another £10-15K in next 3 years, it will be out of warranty (manufacturer extended warranty costs £750 with £250 excess per year) and will require new tyres and services.  There's also Road Tax  of £465 for next free years, cost which was included in the lease of new car.  It will be more expensive to keep it between year 3rd and 6th, than lease it for first 3 years of its life.

motorguy

adamjpl said:

There seems to be quite a lot of people summising that all I have are monthly outgoings built on contracts. I'd like to clear this up for the ones that can't either read or read between the lines in the first post. I have one depreciating asset contract if you like which is my car. I have had this for the last 3-4 years now and have continued to grow my wealth. I do 8-10k miles/year I would say half of this is travelling to and from work with the other half me taking the car on journeys down south whenever I want. My question to the forum was what's the best way to continue to do this if my ultimate goal is to continue to jump into better and better cars. My question was not should I be spending 459/month + 190 a month saving for a new car every couple years (which I have budgeted for). My question was what's the best way to continue doing this, should I get a loan and do it that way or should I continue to lease/look at PCP. Although I am 26 I work hard and I do this for enjoyment you might disagree with that but I might disagree with some people spending £5k on a holiday to X destination every year that you can't enjoy for anymore than the time you are there. I am lucky with my situation I have a job that is a part of an essential service, makes me a decent amount of money and with my active trading and investing allows me to live very comfortably. If you cannot contribute to this in a productive manner then don't contribute at all. I know that might be hard for some of you but I urge you to pass this thread if you wish to lecture me on how much I spend on my car thanks. 

I think i answered that then about a page back - either find alternate ways to fund a new car and accept big depreciation thus you may just be treading water (hence your worked examples show its better to lease / PCP) or buy something used that is low depreciating and finance it with a cheap loan, thus you'll have a decent value in the car when you want to change again.

I would say, for example, the right £50K Porsche will depreciate an awful lot less than a £50K BMW or Merc.

motorguy

daveyjp said:

If you are a petrol head with expensive tastes two options.

Have an income which means running expensive cars doesn't dent your bank balance.
Run a business involving petrol head vehicles so you can play with them.

Or option 3 - buy the right car at the right price and suffer less depreciation.  This would likely involve buying a used car, not a new one.

A friend of mine used to drive M3s and change them every year.  He'd found a particular sweet spot in the depreciation curve that meant he'd look out for the right car at the right price and snap it up, run it a year and often then sell it on losing maybe only £1,000 at worst in depreciation.